Electricity prices are set to rise after ministers announced tougher than expected limits on carbon emissions from businesses.
Businesses will face new limits on carbon emissions
Environment Secretary David Miliband unveiled the plans as the government tried to get its climate change policies back on track.
The new limits would cut emissions by eight million tonnes of carbon a year.
It will mean a one-off rise in electricity prices of 0.5% for homes and 0.5% for businesses.
Mr Miliband said that was a price worth paying to meet the massive challenge of climate change.
"The case for tackling climate change and the human contribution to it is overwhelming," he said.
He also said there would be a new fund to boost investment in renewable energies and other green technology.
The government has faced criticism for falling behind on meeting its own target of cutting carbon dioxide emissions, which are blamed for global warming, by 20% by 2010.
Green groups had wanted stricter emissions limits but had feared they would be lower.
The proposed limit is at the top end of what ministers had been considering and is equivalent to emissions from 4.5 million homes.
For the Conservatives, shadow environment secretary Peter Ainsworth said the plan was a "step in the right direction".
But Liberal Democrat spokesman Chris Huhne said the new limit was "falsely ambitious" because the government had raised the baseline against which it assessed emissions cuts.
Jonathon Porritt, chairman of the Sustainable Development Commission which advises the government, said the new limit was a "serious achievement".
"Here the UK Government is showing real leadership in tackling climate change, both internationally and on the home front," he said.
Mr Porritt said the government needed to look seriously about plugging the remaining gap on its emissions target if it was serious about showing international leadership.